In general, long term leases provide landlords with the most benefit for many reasons, however this is not always in their best interest.
Landlords often find themselves torn on what direction to take. Do I keep the property for a few more months? Should I sell my house? Is it worth renting it out?
In cases where you are uncertain, it may be worth renting out the property for a 6 month or even 3 month period. This allows you to generate some income on the property while you make your final decision on the direction you want to go. Nothing is worse than your property sitting vacant without generating a return. Time passes very quickly and many property owners will wait a month, then another one, and another one until they realize that 2 years has passed with a vacant property.
There are some challenges for short term leases as most tenants are usually looking to secure a place to stay for a while (after all, who likes moving?). To overcome this, you may need to offer a more competitive rent rate and look for someone who is in a transition phase. Someone who is just getting their business up and running or they just move to town. Another possible tenant would be someone who is either changing buildings or having a home built but need some place to crash for a few months.
If you are looking to have the property professionally manager, you may have to offer to pay a higher management fee. Most management companies do not profit off short term rentals and rely on steady rent income for a 12 month period to offset their costs. Many managers may not bring this up when you speak to the, so before to mention that you would be willing to pay more for their services. It would be beneficial to work into the agreement some form of arrangement where if you hold on to the property for more than 12 months, that you receive some type of credit back.
The risks are similar to all investment property in that there is always a risk of getting bad tenant. It’s important to screen short term tenants well as there is usually a reason why they are looking for a short term arrangement. Be sure to find out what their plans are because its easy to overlook this detail but the last thing you want is for a drug dealer to move in with the intention to set up shop and then move somewhere else in a few months.
The biggest benefit to short term rentals is flexibility. You can keep your commitments short if you are unsure of the person. It also gives you the ability to monitor market rents and increase the rent if it increases. The ability to get out of the lease to sell or move into it may also be important to you if this is the reason why you decided to rent out the property in the first place.
As always, Certified Property Solutions recommends that you contact a local property management company to assist with managing your investment. Whether your in Honolulu Hawaii, Las Vegas, or in Los Angeles, there is always a property manager who is willing to help.
July 15, 2014